The domestic chip industry has experienced rapid development in recent years, and with the advancement of technology and the growth of market demand, domestic chips have gradually occupied a place in the domestic and international markets. However, due to the downturn in the market situation, market competition has intensified, leading industry giants to adjust their charges in an attempt to retain customers with lower prices. According to the full year 2023 financial report released by SMIC, there was a significant decline in its performance and its net profit also decreased significantly. There are two main reasons for the decline: First, the semiconductor industry has been at the bottom of the cycle for the past year, with weak demand in the global market, high industry inventories, slow de-inventorying and fierce competition among peers. Secondly, the company is now in a high investment period for the expansion of production capacity, undigested capacity to generate a large amount of depreciation, which in turn compressed the company's profits.
As a result of long-term customer turnover, chip makers have fallen into a price war. Some reports indicate that Chinese chip foundries are currently retaining customers by lowering the ex-factory price of wafers, a strategy designed to ensure maximum utilization of their current and future fabs, while attracting business from Taiwan-based IC design firms and planning to crowd out rivals by producing large quantities of chips. Domestic chipmakers such as Semiconductor Manufacturing International (SMIC), Hua Hong Semiconductor (Hua Hong Semiconductor) and Nextchip, which have already begun to reduce the price of wafer factory services for Taiwan chip design firms over the last year to ensure that they can generate new orders. In response to the Chinese price cuts, Taiwan's UMC and PSMC have had to lower prices to remain competitive. UMC reportedly reduced its offerings for 300mm wafer foundry services by 10% to 15%, and for 200mm wafer services by about 20%. The change, which takes effect in the fourth quarter of 2023, suggests that it is a direct response to market pressure initiated by the Chinese foundry. The report also claims that Samsung foundries also joined the price race in the first quarter of this year, offering discounts ranging from 5 percent to 15 percent. Even Taiwan Semiconductor Manufacturing Company (TSMC), the world's number one foundry with 75% of its Q4 revenues coming from FinFET process technology (16nm and below), has made some adjustments to its offers to make its services more attractive to customers in the face of slowing chip demand. In particular, TSMC reduced the cost of mask services (which will make masks for new designs cheaper), but the extent of the cuts will depend on the volume of orders.TrendForce's analysis of the market trends states: "With China's manufacturing processes matured and not subject to U.S. export restrictions, the reduction in wafer fabrication costs has become attractive to Taiwan-based IC design firms seeking to increase their cost competitiveness The report also indicates that this competitive pressure is forcing Taiwan IC design companies to compete on a more competitive basis. The report also suggests that this competitive pressure is forcing Taiwan foundries to follow suit and cut prices. In addition to the expansion of production capacity by Chinese chip makers, the overall downturn in the semiconductor market in 2023 has also catalyzed chip price reductions. Some industry sources pointed out that the global chip industry oversupply of capacity continues, the cell phone industry shipments in addition to a few months slightly improved the rest of the month shipments are declining. For the chip has a strong demand for new energy automobile industry, China's new energy vehicles, although the rapid growth, but a large number of cars are low-end cars, such cars are mainly to control costs, the demand for chips is not very high. In this case, the chip industry is difficult to see the hope of price rebound, the price war is expected to continue.
With China's foundries lowering their ex-factory wafer offers and production prices before installing all purchased tooling and building all the fabs under construction, we can expect how they will act once new capacity comes online. Sanctions against the Chinese semiconductor industry do not affect mature nodes, so Chinese companies will be able to and will continue to use mature technologies to take customers from other foundries. This price war could have far-reaching implications for the global semiconductor market and deserves close attention inside and outside the industry.
